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July 30, 2008

McCain Upsets Conservatives With Hint of Tax Increase ELECTIONS 2008

by Sam Savage

By Brian Knowlton

Robert Pear and David M. Herszenhorn contributed reporting from Washington.

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John McCain came under fire from conservatives Tuesday for indirectly suggesting that he might be open to higher Social Security taxes, a day after a record government budget deficit underscored how difficult it would be for the next president, whoever he is, to carry out promised programs costing billions.

Both McCain, the presumptive Republican presidential candidate, and Barack Obama, his expected rival in November, are seeking to return the focus this week to the ailing economy amid a growing sense that the man with the more potent economic message - on jobs, gasoline prices, taxes and the housing crisis - will carry an important edge into the election.

So McCain's suggestion Sunday that "there is nothing that's off the table" in future efforts to shore up the Social Security system, presumably including a rise in payroll taxes, caused a stir among conservatives, who noted his repeated vows to raise no taxes.

The White House predicted Monday that President George W. Bush would leave a record $482 billion deficit to his successor. Bush took office in 2001 after three consecutive years of budget surpluses under President Bill Clinton, a Democrat.

The worst may be yet to come. The deficit does not reflect the full cost of military operations in Iraq and Afghanistan, the potential $50 billion cost of another economic stimulus package or the possibility of steeper losses in tax revenues in a slack economy.

Jim Nussle, the White House budget director, predicted that the deficit would more than double in the current fiscal year - to $389 billion, from $162 billion in 2007 - before shooting up to $482 billion in the fiscal year starting Oct. 1.

The deficit projected for 2009 would easily surpass the record of $413 billion in 2004. The projected deficit would be 3.3 percent of the economy, the largest share since 2004, but well below the percentages recorded in the 1980s and early 1990s.

The bleak outlook for the budget will seriously curtail the ability of the next president to carry out ambitious spending plans.

McCain issued a particularly stinging critique of Bush, a fellow Republican, saying that the new report provided a reminder of "the need to reverse the profligate spending that has characterized this administration's fiscal policy."

Jason Furman, economic policy director for Obama's campaign, said McCain was "proposing to continue the same Bush economic policies that put our economy on this dangerous path."

Furman said Obama would cut wasteful spending, close corporate tax loopholes and roll back tax cuts for the wealthiest Americans, "while making health care affordable and putting a middle-class tax cut in the pocket of 95 percent of workers and their families."

The nonpartisan Tax Policy Center estimates the cost of McCain's tax policies at $3.6 trillion over the next decade, and of Obama's at $2.7 trillion, not including an additional $130 billion Obama would spend each year for health care, education and other programs.

Obama, seeking to refocus his campaign on the economy after a high-profile foreign tour, met with a blue-ribbon panel of economic advisers Monday.

"The economic emergency is growing more severe," Obama said. "I believe more action is going to be necessary so that entrepreneurship is encouraged, so that the market is thriving, so that hard work is rewarded."

Participants in Obama's meeting included such prominent Democratic figures as Robert Rubin and Lawrence Summers, both Treasury secretaries in the Clinton administration; and Paul Volcker, the former Federal Reserve chairman. It also included Warren Buffett, the investor, and Paul O'Neill, who was a Treasury secretary under Bush. Obama also scheduled a meeting Tuesday with Ben Bernanke, the Federal Reserve chairman.

McCain, who has struggled to broaden his appeal among conservatives, found himself under attack for even hinting indirectly at a possible increase in Social Security payroll taxes.

Pat Toomey, president of the Club for Growth, a conservative group that supports candidates who favor its low-tax philosophy, said in an open letter to McCain that his comment "was particularly shocking because you have been adamant in your opposition to raising taxes under any circumstances."

Bounds, the McCain spokesman, was more categorical than the candidate had been Sunday. "There is no imaginable circumstance where John McCain would raise payroll taxes; it's absolutely out of the question," he said.

That was a rather more convoluted version of the pledge made famous by the current president's father, George H.W. Bush, at the 1980 Republican nominating convention: "Read my lips: no new taxes." As president, under pressure to reduce the deficit, the elder Bush did finally agree to some tax increases.

The new deficit numbers may be overly optimistic. They do not account for any drains on the national treasury that might result from further declines in the housing market.